STRENGTHS

Attractive prospects for investors in mining, hydroelectric power and agriculture

Exploitation of oil reserves off the coast of Guyana from 2020

Member of CARICOM (Caribbean Community and Common Market)

WEAKNESSES

Reliance on exploitation of gold, bauxite, sugar, rice and timber

Shortcomings in infrastructure, transport, education and health

Sensitive to weather events (region strongly affected by hurricanes)

Territorial dispute with Venezuela

Reliance on international creditors

High crime rate linked to drug trafficking against a background of poverty and corruption

RISK ASSESSMENT

Progressive transition from an agricultural and mining economy to an oil economy

Growth is expected to continue to increase in 2019 due to significant public and private investments (17% of GDP in 2017), and thanks to the performance of the agricultural and extractive industries. In 2017, the government launched its Public Sector Investment Programme (PSIP), representing 2.5% of GDP, for the construction of roads and electrical installations. This public investment, which reached its highest level in 2018, is expected to continue in 2019. The construction sector will benefit from these measures.

An offshore oil field has been discovered by US company Exxon-Mobil off the coast of Guyana. Further exploration in 2018 concluded that the amount of oil was much higher than the amount announced in 2017, at 3.2 billion barrels of oil. This sector will eventually become a key growth factor in 2020 (extraction of 120,000 barrels per day). For the time being, growth remains linked to the agricultural (rice, sugar), fish (shrimp) and mining (gold and bauxite) industries, whose production is largely export-oriented. The agricultural sector grew by 3.4% in 2018 and its performance in 2019 will remain dependent on weather conditions. Sugar production is expected to continue to decline, but this will be offset by good results in rice and wood production. The introduction of a new high-yielding rice variety and strong credit growth in the forest industry will likely maintain the positive contribution of these two sectors to economic activity in 2019.

Inflation is expected to accelerate due to the increase in commodity prices, which is one of its main components. As a result, household consumption (65% of GDP in 2017) could decrease due to a decline in purchasing power.

While waiting for oil revenues, deficits remain

The government is still pursuing an expansionary fiscal policy marked by significant public spending on infrastructure and the restructuring of the sugar sector. The budget deficit is expected to decrease slightly due to a reduction in subsidies to the state-owned sugar company GuySuCo (which received subsidies equivalent to 1-2% of GDP in the last three years). In addition, an increase in public revenue would be made possible by better tax collection, following an effort to modernise the functioning of the tax administration. The risk related to debt sustainability is expected to be offset by future oil revenues of 2.6% of GDP in 2020, which should rise in subsequent years (4.1% of GDP in 2021). The external share of debt represented 35.5% of GDP in 2017.

Regarding external accounts, the country has a structural trade deficit, with imports mainly composed of fuel and capital goods, and exports of raw gold (52%), rice (16%), and bauxite (9%). The balance of services is also structurally in deficit (9% of GDP in 2017). However, the current account deficit is expected to narrow as a result of lower fuel imports and higher gold exports. It is mainly financed by FDI in the mining and petroleum sector (6% of GDP in 2017). Moreover, Guyanese workers' remittances abroad accounted for 9.2% of GDP in 2017. Exchange rate flexibility remains on the monetary authorities' agenda, whose goal is to improve adjustment to exogenous shocks and preserve foreign exchange reserves (approximately three months of imports in 2017).

Institutional strengthening in a tense political climate

After more than 20 years in power, the Indo-Guyanese People's Progressive Party/Civic (PPP/C) was replaced by the multi-ethnic coalition led by two parties, UNPA and the AFC, in the 2015 presidential elections. This coalition is headed by President David Granger and has a majority in parliament. The government has carried out structural reforms to improve the business environment and fight corruption in order to maximize opportunities related to oil exploitation (a new entity to control the oil and gas industry has been created to replace the Geological and Mining Commission). However, ethnic tensions persist and may intensify with the upcoming elections in May 2020, which could be rescheduled following Parliament’s non-confidence vote against the government. The business environment remains risky: the country ranked 134th out of 190 countries in the 2019 World Bank's Doing Business ranking.

Despite an international decision fixing the current borders, Venezuelan President Nicolas Maduro affirmed in 2015 his country's sovereignty over nearly two thirds of Guyana's territory and maritime area. This came after the announcement of the discovery of the oil field off the coast of Guyana, located in the disputed area, rekindling a controversy that dates back more than a century. A period of negotiation had been granted to the two countries by the UN (until the end of 2017), but did not resolve the conflict: the case therefore now goes to ICJ.